Financial Stability Report - 2021 H2

The Bank of Albania assesses that the activity of the banking sector was stable in 2021 H1. Deposits and loans grew at a rapid pace, credit quality continues to improve and the other financial stability indicators remained at appropriate levels. Overall, the exposure of the banking sector to risks appears contained. Economic developments throughout 2021 were quite positive, although economic growth, the decrease of unemployment rate, and supply-side shocks were accompanied by higher inflationary pressures at the end of the period. The projections revised after the beginning of the war in Ukraine, suggest that inflationary pressures will be stable in the short run. They may be accompanied by an increase in the cost of production, a fall in consumption and investments, and a deceleration of economic growth. The current reaction of the economic and financial policies to mitigate this shock, is assessed to be in the right direction, given the considerable uncertainties around the geopolitical developments and energy situation. The direct exposure of the banking sector towards Russia and Ukraine is low, and it will not affect the financial stability indicators of the activity, whereas indirect exposure is defined by the macroeconomic factors. Related to the banking sector, the importance of the regular assessment of the exposure degree to risks, and preserving the proactive approach regarding the measures for mitigating and tackling these risks, remains pertinent. In this regard, the Bank of Albania remains ready to take all the necessary actions pursuant to the law - to support the banking activity and contribute to the stability of the financial system.